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This lesson examines the February 1, 2013, U.S. Department of Labor, Bureau of Labor Statistics (BLS), announcement of employment data and the unemployment rate for the month of January, 2013. This lesson introduces more of the basic concepts of the BLS employment and unemployment data. The meaning and importance of the data are discussed. Assessment exercises are included for reinforcing knowledge of the concepts.

KEY CONCEPTS

Business Cycles, Economic Growth, Full Employment, Labor Market, Macroeconomic Indicators, Unemployment, Unemployment Rate

STUDENTS WILL

  • Review the most recently reported U.S. employment and unemployment data.
  • Determine the changes in U.S. employment and unemployment from the past month and year.
  • Determine the factors that have influenced the change in the U.S. unemployment rate.
  • Explain the implications of the employment and unemployment data for individuals, population groups, and the U.S. economy.

Current Key Economic Indicators

as of May 5, 2013

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers decreased 0.2 percent in March after increasing 0.7 percent in February. The index for all items less food and energy rose 0.1 percent in March after rising 0.2 percent in February.

Employment and Unemployment

Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.

Real GDP

Real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

Federal Reserve

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent...

INTRODUCTION

Each month, the U.S. Bureau of Labor Statistics (BLS) releases data from the monthly "Household Survey" conducted by the Bureau of the Census, providing a comprehensive body of information on the employment and unemployment experience of the U.S. population, classified by age, sex, race, and a variety of other characteristics.

The BLS also conducts the Current Employment Statistics (CES) program, surveying about 150,000 businesses and government agencies, representing approximately 390,000 individual work sites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls.

The BLS compiles information from these sources and announces the monthly "Employment Situation," reporting the current U.S. employment and unemployment data estimates. The monthly announcement reports employment data from the previous full month.

This lesson is about the February 1, 2013, BLS announcement of the "Employment Situation" for the month of January, 2013.

[NOTE: "Employment and Unemployment Rate" Focus on Economic Data lesson schedule:

During the second semester of the 2012-2013 school year, (January-May), EconEdLink will publish five Focus on Economic Data lessons on employment and the unemployment rate. During this time period, the lessons will begin with the 'basics' in September (this lesson) and progressively focus more on complex data, issues and comparisons. All monthly Focuses on Economic Data will include the current data and significant recent changes.

  • December, 2012.  Released January 4, 2013: employment and unemployment data basics. What is employment? What is the unemployment rate? How are they measured? What is the current data? What do they mean?
  • January 2013.  Released February 1, 2013: details and issues about the measurement and meaning of employment and unemployment, adding concepts such as underemployment, full employment, etc. [THIS LESSON]
  • February 2013.  Released March 8, 2013: detailed breakdown of the data by region and industry (trends, identifying trends and comparisons of regions and demographic groups.
  • March 2031.  Released April 5, 2013: the relationships of employment and unemployment data to other economic data, such as GDP, CPI, etc., and the business cycle.
  • April 2013.  Released May 3, 2013: Year-end review.

MATERIALS


Key Economic Indicators

as of February 1, 2013

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers was unchanged in December after decreasing 0.3 percent in November. The index for all items less food and energy rose 0.1 percent in December, the same increase as in November.

Employment and Unemployment

Total nonfarm payroll employment increased by 157,000 in January, and the unemployment rate was essentially unchanged at 7.9 percent. Retail trade, construction, health care, and wholesale trade added jobs over the month.

Real GDP

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.

Federal Reserve

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

PROCESS

The "New Normal" - Almost 8 Percent Unemployment?

In the most recent (2008-2009) and the previous (2001) recessions, it took a significant length of time to recreate the number of jobs lost during the downturn.  In both instances, the economy began to grow without increasing jobs at a similar rate. - what some call a "jobless recovery."

Historically, at the end of a recession, with the economy in the upward phase of the business cycle, companies have hired back unemployed workers.  In these cases, where the recession was in a typical business cycle, the renewed demand for goods and services motivated employers to hire.  And, typically, the growth of jobs fell in line with the growth in output in a more labor-intensive system.

[Teacher Note:  The business cycle is explained later in this lesson.  See Figure 5.]

Today, growth seems to more easily happen without that same pattern of rehiring.  Maybe companies are reluctant to hire more workers when the future is uncertain.  Maybe companies are taking advantage of the recession to adjust how they do things.  Can they produce more with fewer workers?  Maybe improvements in technology have created a structural change in the economy and the workforce has to change to fit that structure.  In any case, employment growth through 2012 has lagged the GDP growth of the economy.  The U.S. unemployment rate has remained at an unacceptably high level.

Take a look at the February 1, 2013, BLS "Employment Situation - January 2013" announcement to learn more about current labor market conditions and the extent of the recovery, so far.

Bureau of Labor Statistics: The Employment Situation – January ,2013
Released February 1, 2013

"Total nonfarm payroll employment increased by 157,000 in January, and the unemployment rate was essentially unchanged at 7.9 percent, the U.S. Bureau of Labor Statistics reported today. Retail trade, construction, health care, and wholesale trade added jobs over the month."

[Note: Unless otherwise cited, the quoted content of this lesson is from the February 1, 2012, BLS "Employment Situation - January 2013" announcement.  URL:
www.bls.gov/news.release/archives/empsit_02012013.htm .]

The general consensus is that it takes about 150,000 new jobs each month just to accommodate growth of the labor force. If that is accurate, a gain of 157,000 jobs means the economy is just keeping up.  In January,  just 17,000 more people were employed than in December, 2011, but 126,000 more people were unemployed.  These seemingly contradictory numbers come from the two separate BLS surveys - the "Household Survey" (unemployment) and the "Establishment Survey" (employment.)

Figure 1, below, shows the key U.S. labor market data for December, 2012, and January, 2013.

figure 1

[Teacher Note: Be sure the students can define the key labor market concepts.  Use the BLS Glossary, www.bls.gov/bls/glossary.htm .]

"The number of unemployed persons, at 12.3 million, was little changed in January. The unemployment rate was 7.9 percent and has been at or near that level since September 2012."

U.S. unemployment reached a recent high of almost 15.4 million in October, 2009.  It had been at just 7 million in mid-2007.  With 12.3 million unemployed in January, there is still a long way to go.  The unemployment rate hit a recent high of 10.0 percent in October, 2009.  It had been as low as 4.4 percent in May, 2007. 

Though the unemployment rate mirrors the number of unemployed over time, the monthly numbers often do not move in the same direction.  Why?  Most often the key variable is the size of the labor force.  As people move in and out of the labor force (working or looking for a job), the rate can change more or less than the change in the number of employed.

Remember, the unemployment rate is the number of unemployed divided by the size of the labor force.  If a person is not working and stops looking for a job, that person is technically no longer unemployed.

[Teacher Note:  Remind students of the three general types of unemployment - cyclical, structural, and frictional.  The natural rate of unemployment includes the frictionally and structurally unemployed.  Those who are unemployed due to the downward phase of the business cycle and reduced demand for goods and services are the cyclically unemployed.  Stimulatory government policies are most often aimed at this group.] 

Figure 2, below, shows the monthly U.S. unemployment rates since the year 2000.  The rate was 4.7 percent prior to the beginning of the recession in December 2007.

Figure 2

[Teacher Note:  To see the history of the U.S. monthly unemployment rates, go to this BLS webpage: http://data.bls.gov/timeseries/LNS14000000 .]

In 2012, the U.S. economy created almost 2.2 million jobs.  In 2009, the economy lost over 5 million jobs.  The employment recovery, in terms of jobs, has been very slow by historical standards.  Again, in January, 2013, employment growth just kept up with population and labor force growth.

Take another look at the data in Figure 1, above.

[Note: The current employment data has been adjusted as a result of the population data from the 2010 U.S. Census. Some historical data has been adjusted to reflect the more accurate census data.  Also, the currently reported data reflects the annual adjustments made by the BLS.  See the notes after the announcement language and "Table A. Revisions in total nonfarm employment, January-December 2012, seasonally adjusted." ]

Details of the Employment and Unemployment Data for January, 2013


In Table A, look at the numbers of “employed persons at work part-time” and “discouraged workers."  Are these people functionally unemployed?  A part-time worker who wants a full-time job is still counted as "employed."  Someone who has dropped out of the labor force is not counted as "unemployed" because he or she has not looked for work in the last four weeks. 

Remember the BLS definition of an unemployed person.  “Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

What is the unemployment rate if you count these and others who are not counted in the "headline" numbers?  The BLS has developed a set of "alternative measures of labor underutilization."  For January, 2012, the BLS reported six "alternative measures" of unemployment:

[Teacher Note: Students discussion question: Which of these do you think is the most meaningful measurement of unemployment?]

  • U-1   Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
  • U-2   Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
  • U-3   Total unemployed, as a percent of the civilian labor force (official unemployment rate)
  • U-4   Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
  • U-5   Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force
  • U-6   Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

In January, 2013, the U.S. unemployment rate including the "unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force," (U-6) was 14.4 percent.

[Teacher note: See "Table A-15. Alternative measures of labor underutilization." www.bls.gov/news.release/archives/empsit_02012013.htm .  For the BLS definitions use in the above categories, see the BLS "Glossary," www.bls.gov/bls/glossary.htm .] 

Unemployment Rates by Demographic Group - January 2013

Figure 3, below, summarizes the January, 2013, unemployment rates for age, ethnic, and educational attainment groups. Note the groups that are better-off or worse-off than other groups.

Figure 3

[Teacher Note: Student discussion question: Can you identify any patterns they see in the January, 2011, employment and unemployment data.  How does unemployment impact these demographic groups?]

What generalizations can you make about these demographics group unemployment rates?

  • How important is education?
  • Why are women doing a little better than men?
  • Is unemployment evenly divided among ethnic groups?
  • Why is unemployment among teenagers so high?

[Teacher Note:  For more information about level of education, median earnings, and unemployment rates, go to the BLS page,  "Education Pays ."]

Employment and the Business Cycle

One of the important criteria used by the National Bureau of Economic Research (NBER) to identify business cycles and recessions is payroll employment data.  The most recent recession ended in June, 2009, when the NBER concluded that, among other things, employment was increasing - a sign of recovery.  Since then, the unemployment rate has remained stagnant, but there has been modest economic growth (see the Real GDP "EconEdLink lessons for the past few months.)  The Business Cycle model is illustrated below in Figure 4.

Figure 4

[Note to teachers:  For more information about the business cycles, go to the National Bureau of Economic Research (NBER) website, www.nber.org/cycles/main.html .]

How Did Workers the Major Industry Groups Fair in January 2013?

[Note: This data is from the Establishment Survey and Table B (www.bls.gov/news.release/empsit.b.htm )]

"Total nonfarm payroll employment increased by 157,000 in January. In 2012, employment growth averaged 181,000 per month. In January, job gains occurred in retail trade, construction, health care, and wholesale trade, while employment edged down in transportation and warehousing."

Figure 5, below, shows the changes in employment among major industry groups.  The BLS noted that "Employment in retail trade rose by 33,000 in January, compared with an average monthly gain of 20,000 in 2012. Within the industry, job growth continued in January in motor vehicle and parts dealers (+7,000), electronics and appliance stores (+5,000), and clothing stores (+10,000).Job losses continued in the government sector.

Figure 5

[To see a complete breakdown of industry employment in January, 2013, go to the BLS announcement Table B-1. Table B-1. Employees on Nonfarm Payrolls by Industry Sector and Selected Industry Detail www.bls.gov/news.release/archives/empsit_02012013.htm .]Table B-1. Employees on Nonfarm Payrolls by Industry Sector and Selected Industry Detail

[Teacher Note: Student discussion question:  What important industries in your region have higher or lower rates of job growth (loss) than the average?]

[Teacher Note:  Students should be able to identify industry groups that have been increasing employment or decreasing during the recovery.   The link above to the industry breakdown may be helpful.  Assign an industry group to individual or small groups of students.  They can summarize the recent trend in that industry group.]

What is Full Employment?

When analyzing business cycles, economists define an unemployment rate that is "full employment." Full employment exists when nearly all persons willing and able to work at the prevailing wages and working conditions are employed. Generally, this is called the an acceptable level of "natural" unemployment, when cyclical unemployment is at a minimum. This often referred to as the "non-accelerating inflation rate of unemployment" or NAIRU.

Economists do not agree or know for certain what the full employment rate is. A consensus estimate is that the full employment rate of unemployment is currently between 4.5 and 5.0 percent of the labor force being unemployed. The measure of full employment will exclude frictional unemployment and structural unemployment.

Remember, there are three general types or causes of unemployment.

  • Frictional unemployment is temporary unemployment arising from the normal job search process.
  • Structural unemployment is the result of changes in the economy caused by technological progress and shifts in the demand for goods and services.
  • Cyclical unemployment is unemployment caused by a drop in economic activity.

When the economy is at full employment and other productive resources are being utilized to their fullest, the economy may be reaching its "full employment GDP." At this point, the economy is reaching or is at its potential output or GDP, given existing productive resources.   The lost output from unemployment in a recessionary period is called the "Recessionary Gap."

What is Underemployment?

The BLS does not officially use the term "underemployment."  The BLS explains on the Current Population Survey FAQ webpage: "Because of the difficulty of developing an objective set of criteria which could be readily used in a monthly household survey, no official government statistics are available on the total number of persons who might be viewed as underemployed. Even if many or most could be identified, it would still be difficult to quantify the loss to the economy of such underemployment."  In other words, the term is hard to define by BLS standards.

In articles, references to underemployment examples are those who work part-time and would like to work full-time, those who work at jobs with wages below their level of training, and those who are marginally attached to the labor force.  See the section of this lesson on "alternative measures of unemployment for more details.  

[Teacher Note: Students discussion question: Should the underemployed be counted as somehow or partially unemployed?  Maybe two people working half-time who want to work full-time should be counted as one employed and one unemployed? What do you think?]

Seasonally Adjusted Household Survey Data

Short-run trends in labor force are influenced by seasonal and periodic fluctuations associated with recurring events such as weather, holidays, and the opening and closing of schools. Seasonal adjustment eliminates the influence of these fluctuations and makes it easier for users to observe fundamental changes in the level of the series, particularly changes associated with general economic expansions and contractions.

At the end of each calendar year, the BLS updates the seasonal adjustment factors for the labor force data derived from the Current Population Survey (CPS), or household survey.

[Note to teachers: For a full explanation of the seasonal adjustment process, see the BLS article Revision of Seasonally Adjusted Labor Force Series in 2008 .]

Household vs. Establishment Series

Statistics on nonagricultural employment, hours of work, and earnings are compiled from two major sources: household interviews and reports from employers.

Some of the confusion over the meaning of the unemployment and employment data arises from differences between the two primary sources of the data, the Current Population Survey (Household Survey) and the Current Employment Statistics Survey (Establishment Survey.)

The Household Survey is based on interviews obtained from a sample of the population, aged 16 years of age and over. This monthly survey, conducted by the Bureau of the Census, provides data on the labor force, the employed, and the unemployed, classified by such characteristics as age, sex, race, family relationship, marital status, occupation, and industry attachment. The survey is conducted during a calendar week that includes the 12th of the month.

The Establishment Survey data is compiled each month from mail questionnaires and telephone interviews by the Bureau of Labor Statistics, in cooperation with State agencies.

This survey provides information on nonfarm wage and salary employment, average weekly hours, average hourly earnings, and average weekly earnings for the nation, states, and metropolitan areas. The survey is conducted from a sample of over 390,000 establishments employing over 47 million nonfarm full or part time wage and salary workers during the same week as the Household Survey.

Data from these two sources differ from each other because of variations in definitions and coverage, source of information, methods of collection, and estimating procedures. The major factors which have a differential effect on the levels and trends of the two data series are:

The key to the difference is the definition of who is employed in the surveys.  The Household Survey (CPS) includes the unincorporated self employed, unpaid family workers, agriculture and related workers, private household workers, and workers absent without pay.

The Establishment Survey (CES) estimate of jobs only those receiving pay for the reference pay period. The CES excludes many of the groups included in the CPS who do not work for the businesses that report data.

  1. Employment.  The household survey definition of employment includes wage and salary workers (including domestics and other private household workers), self-employed persons, and unpaid workers who worked 15 hours or more during the reference week in family-operated enterprises. The establishment survey covers only wage and salary employees on the payrolls of nonfarm business establishments.
  2. Multiple jobholding. In the Household Survey, each person is classified as employed, unemployed, or not in the labor force.  Employed persons holding more than one job are counted only once. For the Establishment Survey, people who worked for more than one establishment are counted each time their names appear on a payroll.
  3. Unpaid absences from jobs. The household survey includes among the employed all civilians who had jobs but were not at work during the reference week—that is, were not working but had jobs from which they were temporarily absent because of illness, vacation, bad weather, child care problems, labor-management disputes, or because they were taking time off for various other reasons, even if they were not paid by their employers for the time off. In the Establishment Survey, persons on leave paid for by the company are included, but those on leave without pay for the entire payroll period are not.  Source: www.bls.gov/lau/lauhvse.htm

In the definitions above, there are a couple of big differences between the two surveys that may impact the "official" number of employed and unemployed persons.   Again, just looking at the simple numbers from the surveys may not provide a complete picture of the health of the labor market in the United States.

[Teacher Note: Ask your students what they think.]

ASSESSMENT ACTIVITY

CONCLUSION

The U.S. economy created 157,000 new jobs in January, 2013.  Maybe a "jobless recovery" and almost 8 percent unemployment is the "new normal."  It is not good practice to identify a trend based on one or two months' data, but the January employment data reinforced that the recovery is slow, especially in labor markets.

Job creation since the beginning of the recovery has been erratic - a few months of good job growth and then a few months of slow job growth, etc.  Both the unemployment rate and number of unemployed are back to the level of February 2009, but well above the levels of November 2007.

[Teacher Note: Ask students:  What do you think will be the best sign that the economy is really recovering?]

The 2008-2009 recession was longer and more widespread than any recession since the Great Depression of the 1930s.  Job growth in this recovery has been slower than other periods, but may have turned the corner.  Keep an eye on job growth over the next few months to see if there is a solid growth trend.

EXTENSION ACTIVITY

Women in the Labor Force

The past several decades have been seen significant changes in women’s participation in the labor force and employment. Since the 1970s, women’s labor force participation has risen substantially, particularly among women with children, and a larger share of women work full time and year round than ever before. Although the average hours worked and average wage rates for women lag those of men, the gaps are narrowing.

Go to the BLS online publication, "Women in the Labor Force: A Databook ," to read a brief history of the changes in the labor force participation of women.

How do you think these changes in the status of women have affected our society, our economy, and our lives?

The BLS also provides information about the Demographics of the U.S. labor force, including age, youth, women, educational attainment. etc.   Take a look at any special group you wish to research.

 

Super Storm Sandy - Did It Impact the Employment Data?

In a set of FAQs at the end of the February 1, 2013, announcement, the BLS added some new questions.  One was about the impact of severe weather on the employment and unemployment .  Here is the BLS response:

Question 8. How can unusually severe weather affect employment and hours estimates?

"In the establishment survey, the reference period is the pay period that includes the 12th of the month. Unusually severe weather is more likely to have an impact on average weekly hours than on employment. Average weekly hours are estimated for paid time during the pay period, including pay for holidays, sick leave, or other time off. The impact of severe weather on hours estimates typically, but not always, results in a reduction in average weekly hours. For example, some employees may be off work for part of the pay period and not receive pay for the time missed, while some workers, such as those dealing with cleanup or repair, may work extra hours.

In order for severe weather conditions to reduce the estimate of payroll employment, employees have to be off work without pay for the entire pay period. Slightly more than 20 percent of all employees in the payroll survey sample have a weekly pay period. Employees who receive pay for any part of the pay period, even 1 hour, are counted in the payroll employment figures. It is not possible to quantify the effect of extreme weather on estimates of over-the-month change in employment. In the household survey, the reference period is generally the calendar week that includes the 12th of the month. Persons who miss the entire week's work for weather- related events are counted as employed whether or not they are paid for the time off.

The household survey collects data on the number of persons who had a job but were not at work due to bad weather. It also provides a measure of the number of persons who usually work full time but had reduced hours. Current and historical data are available on the household survey's most requested statistics page at http://data.bls.gov/cgi-bin/surveymost?ln."